The present invention relates to electronic trading systems. More specifically, the present invention relates to electronic trading systems that are based on a Request for Quote (RFQ) trading method.
An RFQ method typically is initiated by a first participant transmitting a request to multiple participants for a quote (either a request for a bid or a request for an offer) in a particular market. For example, a first participant may request that a select group of participants provide the first participant a bid for 50 million dollars in notional value (hereinafter referred to by “m”, i.e., 50 million=50 m) of 5-year United States Treasure Notes. Each of the group of responding participants may respond with a quote for which the respective participant would purchase the 50 m of 5-Year Notes. Then, the first participant may select to trade with the best quote from the returned quotes.
The advent of RFQ-based electronic trading substantially increased trading volume in certain sectors of the fixed-income securities market. In addition, RFQ-based electronic trading, in part due to the increased volume of the market which generated greater transparency, also substantially reduced transaction costs—e.g., margins—for the participants that were requesting quotes.
The reduced margins have been substantially caused by reduced dealer fees in RFQ-based electronic trading. Moreover, RFQ-based electronic trading also has minimized the importance of the bond dealer/bond client relationship because the most important determining factor in the selection of one of the responding participants in RFQ-based electronic trading in the retail Treasury market has become price (in the U.S. Treasury Market, the clients typically request quotes and the dealers typically respond to the requests). This minimization of the importance of the bond dealer/bond client relationship has increased price competition among dealers, and thereby has negatively impacted the dealers' profitability. The substantial negative impact on the dealers' profitability has led to a general degradation of the retail bond industry and may, in fact, eliminate all but a few of the participants from the industry. This decreases competition and subsequently harms the public interest in having a highly competitive retail bond market.
It is therefore desirable for the preservation of the retail bond industry to provide systems and methods that restore the bond dealer/bond client relationship in RFQ-based electronic trading while preserving the pricing advantages that have been achieved in the recent past.